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Why Smile Direct Club Stock Dropped 15.4% This Week

So what

Shares in Smile Direct Club (NASDAQ: SDC) dropped 15.4% this week, according to data provided by S&P Global Market Intelligence. The stock closed at $2.21 last Friday, then opened at $2.23 on Monday, and fell to a weekly low of $1.86 on Thursday. The stock is down more than 82% over the past 12 months, compared to a 13.4% advance by the S&P 500 Index, and has a 52-week high of $12.17 and a low of $1.755.

What happened

The company released its fourth-quarter and 2021 year-end earnings report after the markets closed on Monday. Revenue was down and losses were up. The company reported Q4 revenue of $126 million, down 31.6% year over year. Its yearly revenue was listed at $638 million, down 2% compared to 2020. The company reported an earnings per share (EPS) loss of $0.25 in Q4 compared to a loss of $0.09 in the same period last year. Smile Direct Club's yearly EPS was a loss of $0.87 compared to a loss of $0.72 in 2020.

Image source: Getty Images.

The numbers were disappointing, particularly since the company fell short of the top end of its guidance that it had issued in its third-quarter report. It had said it expected full-year revenue between $630 and $650 million and Q4 revenue between $120 million and $140 million, but both of those figures came in on the low end of the company's guidance.

Smile Direct Club has not turned a profit since it went public in 2019, perhaps one reason it announced on Jan. 24 that it was doing some major restructuring, ending its business in Mexico, Spain, New Zealand, and Germany, and laying off workers. Bear in mind that the impact of those moves won't show up on the balance sheet until the second quarter.

Now what

The healthcare company has met a good deal of resistance from dentists and orthodontists regarding its direct-to-customer sales. It has 32 patents that include its orthodontic-treatment planning, aligner manufacturing, and smile-scanning technologies and its telehealth platform.

The key for investors will be if the company's cost-cutting efforts can improve the company's profit margins without negatively impacting its revenue. Smile Direct CEO David Katzman, during the company's Q4 earnings call, stressed that the company's products are largely paid for with discretionary income, and rising inflation has cut into that income for the company's customers.

The company also faces tough competition from its closest competitor, Align Technology, whose revenue has grown by 87.82% over the past three years, while Smile Direct's has fallen 2% over that period.

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Jim Halley has no position in any of the stocks mentioned. The Motley Fool owns and recommends Align Technology. The Motley Fool has a disclosure policy.


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